Leighton’s $5.5 Billion Indian Coal Mine Contract Canceled

Leighton Holdings Ltd. lost a contract to build the first coal mine for India’s biggest power producer NTPC Ltd., amid protests from local villagers that halted the opening of the Pakri Barwadih site.

State-controlled NTPC on May 8 terminated a contract with Leighton’s Thiess Minecs venture to develop and operate the mine, the Sydney-based builder said in a statement today. Thiess Minecs’ Chief Executive Raman Srikanth was arrested the following day in relation to a dispute with Roshni Developers Pvt., the company said in a separate statement.

India’s biggest power producer is seeking to develop its own mines and increase imports as the country’s coal production trails booming electricity demand. Violent protests at Pakri Barwadih in the eastern state of Jharkhand, amid illegal mining by villagers demanding more compensation for their land, have delayed the mine’s opening.

Thiess “will initiate legal proceedings” to recover A$18.5 million ($17 million) in bank guarantees relating to the project that have been called in by NTPC, Australia’s largest builder said in the statement. “It is Thiess Minecs’ position that the action taken by NTPC is in breach of contract.”

NTPC canceled the contract after Thiess Minecs missed timelines for developing the mine, the New Delhi power generator said in a statement today. The contract to develop the mine was for 360 days that ended Nov. 25, 2011, and was extended twice for a total of 1,170 days, according to the statement.

Mine’s Life

Thiess was awarded the contract in 2010 to build infrastructure and coal processing plants before removing surface soil, mining and loading all coal at the site over a 22-year period, according to a statement at the time. Pakri Barwadih was expected to produce more than 300 million metric tons of coal over its life.

NTPC said in the statement the contract was for 27 years. It issued a statement to Thiess on July 10, 2012 asking it to explain why it missed the deadline to develop the mine.

The contract would be worth about A$267 million to Thiess over the next five years, according to Leighton’s statement today. Its announced value in 2010 was A$5.5 billion. NTPC said the value of the contract was 230 billion rupees ($3.8 billion).

Official Arrested

The arrest of Thiess Minecs’ Srikanth related to a complaint by Roshni Developers that was the subject of ongoing civil arbitration proceedings in Singapore, Leighton said in a separate statement.

“The complaint is unfounded and urgent applications are being made to the courts in Hyderabad to dismiss it,” the company said.

Thiess Minecs and Roshni Developers had discussed sub-contracting work to remove soil from the Pakri Barwadih site, according to a court document posted to legal database Indian Kanoon. Fiona Tyndall, a Sydney-based Leighton spokeswoman, declined to comment on the document.

Leighton’s shares fell 1.3 percent to A$19.80 in Sydney, compared with a 0.2 percent decline in the benchmark S&P/ ASX 200 index. NTPC gained 2.5 percent to 121.10 rupees in Mumbai, compared with a 2.4 percent gain in the benchmark S&P BSE Sensex.